Source: PaxForex Premium Analytics Portal, Fundamental Insight
After the SEC filed a lawsuit against Binance and its CEO Changpeng Zhao, Bitcoin's price plunged to $25,500. This sudden drop has left BTC bulls uncertain about whether the market has reached its lowest point. The decline occurred within just one hour on June 5, as the SEC accused Binance of violating federal securities laws. Despite Bitcoin managing to hold the $25,500 support level, investors are grappling with the potential consequences of this regulatory action, which directly involves CZ.
Jeff Dorman, the CEO of digital asset investment firm Arca, believes that the possible shutdown of Binance operations in the US would have little impact. He also argues that non-criminal charges from the past should not disrupt Binance's current international framework. Nevertheless, Dorman anticipates prevailing negative market sentiment as the crypto community rallies behind CZ and Binance.
Despite the limited impact of the SEC charges against Binance in the medium term, there is additional uncertainty arising from Digital Currency Group (DCG) and its subsidiary Genesis Capital, which filed for Chapter 11 bankruptcy on January 19.
Barry Silbert, the CEO of DCG, withdrew $1 billion from his personal holdings at the same time that cryptocurrency hedge fund Three Arrows Capital defaulted, raising questions about the intercompany loans and deals within DCG. While this could be coincidental, it adds further scrutiny to the situation.
Traders are now speculating whether Bitcoin will test the resistance level of $25,000, which hasn't been seen since March 17. With the US debt ceiling crisis being resolved, the likelihood of an unexpected rally in Bitcoin's price seems even less probable in the short term.
Investors should pay close attention to potential negative flips in Bitcoin futures contract premiums or increased costs associated with hedging using BTC options.
Whales and arbitrage desks often favor Bitcoin quarterly futures, but these contracts typically trade at a slight premium compared to spot markets. This premium indicates that sellers demand additional compensation for delaying the settlement.
In healthy markets, BTC futures contracts should exhibit a 5 to 10% annualized premium, a condition referred to as contango, which is not exclusive to the crypto market. However, since June 1, Bitcoin traders have been exercising caution as the futures premium remained below 4%. Following the revelation of the SEC charges against Binance on June 5, the indicator stood at 3.5%.
To gain further insights, traders should also analyze options markets to gauge investor optimism in the wake of the recent correction. The 25% delta skew serves as an important indicator, revealing when arbitrage desks and market makers overprice upside or downside protection.
In summary, if traders anticipate a decline in Bitcoin's price, the skew metric will rise above 7%. Conversely, phases of excitement typically coincide with a negative 7% skew.
The Bitcoin options and futures markets indicate that the bearish trend, which began after the failed $31,000 test on April 14, is still ongoing. However, there haven't been any significant disruptions to the overall market structure. It is important to note that interpreting the potential consequences of the SEC's actions is premature, as court rulings often take months or even years to reach a resolution.
Consequently, those who are anticipating a bullish Bitcoin market should adjust their expectations due to the prevailing uncertainty. With the DCG-Genesis situation and the challenges Binance faces in the stricter US regulatory landscape, there is currently less motivation for long-term buyers to step in and support the critical $25,000 level.
As long as the price is above 25000.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 26032.00
- Take Profit 1: 31000.00
- Take Profit 2: 33000.00
Alternative scenario:
If the 25000.00 level is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 25000.00
- Take Profit 1: 24000.00
- Take Profit 2: 21500.00
